Claim Filed Against UBS Puerto Rico For Puerto Rico Bond Funds and Debt Related Losses on Behalf Of Couple With Approximately $3.5 Million in Losses

Sonn Law Group and Aldarondo & Lopéz Bras recently filed a claim against UBS Financial Services, Inc. and UBS Financial Services Inc. of Puerto Rico on behalf of a retired couple who suffered approximately $3.5 million in losses stemming from closed-end funds invested in Puerto Rico debt (“CEFs”). Aldarondo & Lopéz Bras is a separate law firm only licensed to practice law in Puerto Rico. The couple were clients of Jose Gabriel Ramirez, Jr., also known as “the Whopper” and “Chave,” who allegedly not only recommended that the couple invest the majority of their retirement savings in UBS Funds, but also recommended that the couple reinvest the dividends from the Funds, and use the Funds to secure a credit line from UBS Bank which was used to invest in more UBS Funds. This investment strategy was not only highly risky, but also implicitly or explicitly illegal in its use of UBS Bank loans. Further, this is not an isolated incident of wrongdoing by Ramirez. Ramirez’s CRD reflects 12 other customer complaints of a similar nature for aggregate claims in excess of $50 million, and UBS has placed Ramirez on administrative leave, according to Investment News.

UBS Puerto Rico was the primary underwriter of 23 CEFs with a total market capitalization of more than $5 billion. CEFs differ from traditional open-end mutual funds in that open-end funds offer and redeem shares at the fund’s net asset value (“NAV”). The NAY was determined by the managers of the fund. CEF prices can be at a discount or premium to the NAV. The majority of the UBS CEFs holdings are concentrated in Puerto Rico debt. These UBS CEFs are not traded on an exchange or quoted on any quotation service and are only available to Puerto Rico residents. UBS Puerto Rico has been the only or dominant secondary market dealer or liquidity provider for the UBS CEFs.

The Statement of Claim alleges that the couple, who has been married for 22 years, became clients of Ramirez in 2006, and ultimately entrusted Ramirez and UBS/UBS-PR with the vast majority of their securities investments and retirement savings. The couple had no interest in speculation or high risk investments or strategies. Notwithstanding the couple’s aversion to high risk investments and need to preserve their irreplaceable retirement savings, UBS/UBS-PR recommended an ultra-speculative strategy with devastating results. Ramirez recommended that the couple invest approximately $5.8 million in UBS CEFs, which dangerously concentrated the couple’s assets in high risk Puerto Rican debt.

Ramirez allegedly compounded the couple’s risk by recommending that they engage in an illicit loan scheme wherein the couple borrowed funds from UBS Bank secured by the UBS CEFs, and then used the borrowed money to invest in more UBS CEFs. This strategy was illicit, because the UBS Funds are not marginable and the strategy was a blatant circumvention of Regulation T of the Federal Reserve Board (“Reg-T”), which prohibits the use of margin in connection with the Funds.

Further, Ramirez’s alleged recommendation to use a UBS Bank loan was illicit, because it violated UBS/UBS-PR policy against using non-purpose loans from UBS Bank to invest in any securities, amongst other things. Additionally, UBS Bank was not licensed to do conduct business in Puerto Rico and any recommendation by a UBS/UBS-PR broker to borrow money from UBS Bank was implicitly or explicitly illegal, according to the Statement of Claim. In fact UBS Bank and UBS/UBS-PR acknowledged the illicit nature of the loans by converting all UBS Bank loans to UBS-PR loans in late December 2013. UBS Bank and UBS-PR would not have engaged in this unprecedented action had the loans been legitimate and in accordance with Puerto Rico law.

The husband worked in the homebuilding industry in Puerto Rico, and his business was adversely affected by the economic downturn in Puerto Rico. As a result, he ceased receiving a regular salary in 2011, and told Ramirez that he needed to withdraw funds monthly from his UBS/UBS-PR accounts to meet financial needs. Ramirez recklessly recommended that the man borrow yet additional funds against his UBS Bank credit line, rather than using the dividends paid by the UBS Funds, according to the Statement of Claim. This recommendation further increased the level of risk to which the couple was exposed, and ultimately, magnified their losses.

Ramirez allegedly represented to the couple that the leveraged UBS Funds strategy he recommended and employed was very secure and led them to believe it would serve to generate consistent income while preserving their principal. Ramirez and UBS/UBS-PR repeatedly recommended that the couple continue to hold their leveraged and concentrated portfolios and refrain from selling any securities, according to the Statement of Claim.

The husband raised concerns to Ramirez in 2011 about the UBS Funds strategy that Ramirez employed in the couple’s accounts, and repeatedly told Ramirez that he wanted to reduce the credit lines ans use dividends paid by the UBS Funds to do so. Ramirez allegedly refused to permit the couple to use their dividends from the UBS Funds to pay down their credit lines and insisted that they reinvest all dividends and borrow yet more funds to meet their financial needs. By following Ramirez’s recommendation to reinvest all of the dividends they received from the UBS CEFs, the couple purchased yet additional shares of the Funds which only served to increase their investment in the Funds, and, ultimately, their losses in the Funds.

In 2013, the husband intensified his efforts to pay down the credit lines in 2013. Ramirez adamantly refused to allow the couple to pay down their credit lines and recommended in the strongest terms that they continue with the leveraged UBS Funds strategy and reinvest all of their dividends and not to worry, according to the Statement of Claim. In Ramirez’s absence, Carlos Freire (“Freire”) and Vanessa Ortiz (“Ortiz”) who worked with Ramirez allegedly dispensed the same hold recommendations to the husband.

In September 2013, the UBS Funds declined dramatically. By December 2013, the husband had received numerous margin calls, and his losses were approximately $2.6 million and his equity had been wiped out. Similarly, the wife had losses of $851,000, and most of her equity had been wiped out.

Ramirez allegedly failed to adequately disclose the illiquid nature of the UBS CEFs, the risks associated with the leverage used by the UBS CEFs, the risk of a reduction in the dividend payments of the Funds, the risks of concentrating the couple’s retirement savings in speculative Puerto Rico debt, and the credit risks associated with the UBS CEFs due to Puerto Rico’s dismal financial and economic situation amongst other things, according to the Statement of Claim.

Dozens of other investors have retained Sonn Law Group and Aldarondo & Lopéz Bras to pursue claims against the firms who sold the investments to them. While UBS dominates the island’s market through its UBS Family of Funds, some of which are co-managed with Popular Securities, Banco Santander (Santander Securities), Merrill Lynch, Raymond James, Oriental Bank and others also sold investments linked to Puerto Rico’s municipal debt. Claims for investment losses against UBS and other brokerage firms must be arbitrated through the Financial Industry Regulatory Authority (“FINRA”), the largest dispute resolution forum in the securities industry.

If you invested in UBS CEFS, were a client of UBS, or obtained a loan from UBS Bank, and have experienced financial losses, please call us at 866-507-2640 or complete our “contact form.” Sonn Law Group is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies.

Comments are closed.

Free Consultation

No Recovery, No Fee*

Contact our office today to discuss your case. You can reach us by phone at 844-689-5754 or via e-mail. To send us an e-mail, simply complete and submit the online form below.

First Name*

Last Name:**

Email*

Phone

Tell us about your case:*

Email

This field is for validation purposes and should be left unchanged.

*Our firm, in some cases, advance costs and expenses of the case, and in that event, are recovered from the gross recovery of any settlement or verdict.

"I spoke to Mr Sonn on a complex legal matter. He was direct and asked all the questions that were relevant and provided me with very thoughtful feedback and some useful contacts. His demeanor was professional and pleasant and I would not hesitate to use him in future matters."-Sonn Law Group Client

The stockbroker and investment fraud lawyers at Sonn Law Group dedicate their entire practice to protecting the interests of investors who have lost money as a result of the negligent or wrongful conduct of those entrusted with protecting and growing our money. We fight to level the playing field between large corporations and the public investor.